A report by Fitch Ratings estimates that insurance losses due to severe flooding in South Korea will put pressure on the financial performance of non-life insurers in the country.
Fitch Ratings Industry estimates indicate that flood insurance claims are expected to exceed KRW 150 billion, or less than 0.2% of all written non-life direct premiums. in Korea in 2021.
Fitch expects direct insurers to recover part of their insured losses from flood reinsurers, based on structural reinsurance arrangements, coverage limits and exclusions.
According to the General Insurance Association of Korea, 12 auto insurers received more than 9,100 auto damage claims as of August 11, with losses estimated at 127 billion KRW.
The torrential downpour, which began on August 8, recorded its highest hourly rainfall since weather observations in South Korea began more than 100 years ago.
Heavy rains caused unprecedented flooding in various areas of Seoul, Gyeonggi Province and Incheon, with the Gangnam area being one of the hardest hit. The flood damaged vehicles and property, and paralyzed train and metro services in the affected areas.
Fitch notes that it is becoming increasingly necessary for insurers and reinsurers to develop appropriate risk models or disaster management frameworks as climate models evolve to identify potential disaster losses for options, underwriting, premium pricing or capital management.
Flood losses primarily stemming from motor vehicle damage will be significant for the non-life insurance industry as estimated claims continue to expand, Fitch suggests. Motor insurance accounts for about 21% of total non-life insurance premiums written in 2021.
The average risk retention rate for the motor business of non-life insurers is 92% in 2021. The report indicates that direct insurers may have to take over. bigger claims if they don't provide disaster coverage in their wallet.
The average risk-based regulatory capital ratio for the non-life sector was 210% at the end of March 2022, well above the regulatory minimum of 100%. The availability of a capital buffer varies from business to business and will also provide the relief needed to alleviate flood damage.
In addition, Fitch reports that the Korean government is considering providing financial assistance and personnel support to cities to accelerate recovery efforts. It will also require further improvements to existing flood management systems, including building better drainage systems and improving flood forecasting technology.
Read more: https://www.reinsurancene.ws/korean-flooding-losses-to-hamper-non-life-insurers-earnings-fitch/
